The decline of real GDP in the first quarter of 2022 set off yet another alarm in economic circles about the strength of the U.S. economy. Real GDP is a statistic used to measure the value of goods and services. A decline in that number indicates a decline in economic activity. As Straight Arrow News Contributor Larry Lindsey explains, America could soon be in the grips of another recession.
The main problem is inflation is running very, very hot. What they call the GDP deflator, which is the price of the entire market basket of everything that’s produced, rose 8% in the first quarter, compared to 7.1% in the fourth quarter of last year, and much, much lower rates around 2% as recently as 2020. Well, when the price of things goes up and there’s only so much ability for people to spend, that need necessarily creates a problem for the amount of real goods and services that can be sold. Hence the problem.
Lindsey points out that the market conditions are starting to check the boxes on the National Bureau of Economic Research’s recession checklist.
It usually takes about six or eight months after the numbers come in for them to reach that decision. And there are four criteria that they use. One is the unemployment rate. Right now, that is 3.6%. It’s gonna be tough to get that much lower. It’s more likely to rise than to fall. And that’s a warning sign. Industrial production in the first quarter was up. That’s a positive for no recession. Real final business sales declined by six tenths of a percent. And the final indicator, real personal income, excluding transfers, also declined. So right now we are at two indicators of the four pointing to recession, one uncertain, and the other one good, but may not go any better. So watch out ahead.
The chances that the first quarter was a harbinger of the start of a slow period of growth is obvious. Whether it was the start of a recession remains to be seen. My bet is it probably will end up that way – mild, short, but a recession nonetheless.
